10.1.1 Operational risk

491. All investment firms are exposed to ‘operational risks’, which can be defined as “failure of people, processes and technology in the course of regular business operations, such as breaches in internal controls and monitoring, internal and external fraud, legal claims or business disruptions and improper business practices”.1 Investment firms do not only incur operational risks in the daily operation of their business, just like any business, whether regulated or non-regulated. In addition to these ‘regular’ operational risks, investment firms are also exposed to operational risks in the provision of investment services or activities and the related ancillary services they are allowed to perform. What these operational risks are and how they influence the risk profile of an investment firm will be discussed in the following Section 10.2.2 The coherence between these risks is that they all fall within the broad scope of operational risk. All operational risks can have financial consequences in that an investment firm might have to reimburse its clients for any errors in its operations, or that errors in its operations could lead to a loss in any of its business lines. These financial consequences of operational risks are different from the financial risks an investment firm can be exposed to, which will be explored in the next section.